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The Accounting Information System
3-21
120. For the basic accounting equation to stay in balance, each transaction recorded must
a. affect two or less accounts.
b. affect two or more accounts.
c. always affect exactly two accounts.
d. affect the same number of asset and liability accounts.
121. Which of the following statements is true?
a. Debits increase assets and increase liabilities.
b. Credits decrease assets and decrease liabilities.
c. Credits decrease assets and increase liabilities.
d. Debits increase liabilities and decrease assets.
122. Which pair of the listed accounts follows the rules of debits and credits in relation to
increases and decreases in the same manner?
a. Salaries and Wages Expense and Notes Payable
b. Common Stock and Rent Expense
c. Prepaid Rent and Advertising Expense
d. Service Revenue and Equipment
123. Which pair of the listed accounts follows the rules of debits and credits in relation to
increases and decreases in the opposite manner?
a. Salaries and Wages Expense and Notes Payable
b. Common Stock and Unearned Rent Revenue
c. Prepaid Rent and Advertising Expense
d. Service Revenue and Notes Payable
124. A company that receives money in advance of performing a service
a. debits Cash and credits Unearned Service Revenue.
b. debits Unearned Service Revenue and credits Accounts Payable
c. debits Cash and credits Prepaid Insurance.
d. debits Cash and credits Accounts Receivable.
125. When a company performs a service but has not yet received payment, it
a. debits Service Revenue and credits Accounts Receivable.
b. debits Accounts Receivable and credits Service Revenue.
c. debits Service Revenue and credits Accounts Payable.
d. makes no entry until cash is received.
Test Bank for Accounting: Tools for Business Decision Making, Fifth Edition
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126. Assets normally show
a. credit balances.
b. debit balances.
c. debit and credit balances.
d. debit or credit balances.
127. An awareness of the normal balances of accounts would help you spot which of the
following as an error in recording?
a. A debit balance in the Dividends account
b. A credit balance in an expense account
c. A credit balance in a liabilities account
d. A credit balance in a revenue account
128. If a company has overdrawn its bank balance, then
a. its Cash account will show a debit balance.
b. its Cash account will show a credit balance.
c. the Cash account debits will exceed the cash account credits.
d. it cannot be detected by observing the balance of the Cash account.
129. Which account below is not a subdivision of stockholders’ equity?
a. Dividends
b. Revenues
c. Expenses
d. Liabilities
130. When a corporation distributes a dividend the
a. most common form of distribution is a cash dividend.
b. Dividends account will be increased with a credit.
c. Retained Earnings account will be directly increased with a debit.
d. Dividends account will be decreased with a debit.
131. The Dividends account
a. appears on the income statement along with the expenses of the business.
b. must show transactions every accounting period.
c. is increased with debits and decreased with credits.
d. is not a proper subdivision of stockholders’ equity.
The Accounting Information System
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132. A revenue account
a. is increased with a debit.
b. is decreased with a credit.
c. is increased with a credit.
d. has a normal balance of a debit.
133. Which of the following statements is not true?
a. Expenses increase stockholders’ equity.
b. Expenses have normal debit balances.
c. Expenses decrease stockholders’ equity.
d. Expenses are a negative factor in the computation of net income.
134. A credit to a liability account
a. indicates an increase in the amount owed to creditors.
b. indicates a decrease in the amount owed to creditors.
c. is an error.
d. must be accompanied by a debit to an asset account.
135. In the first month of operations, the total of the debit entries to the Cash account
amounted to $1,400 and the total of the credit entries to the Cash account amounted to
$800. The Cash account has a
a. $800 credit balance.
b. $1,400 debit balance.
c. $600 debit balance.
d. $600 credit balance.
136. In the first month of operations, the total of the debit entries to the Cash account
amounted to $1,200 and the total of the credit entries to the Cash account amounted to
$900. The Cash account has a
a. $900 credit balance.
b. $300 debit balance.
c. $1,200 debit balance.
d. $300 credit balance.
Test Bank for Accounting: Tools for Business Decision Making, Fifth Edition
FOR INSTRUCTOR USE ONLY
3-24
137. In the first month of operations, the total of the debit entries to the Cash account
amounted to $1,000 and the total of the credit entries to the Cash account amounted to
$600. The Cash account has a
a. $600 credit balance.
b. $1,000 debit balance.
c. $400 debit balance.
d. $600 credit balance.
138. The Cash account has a credit balance. Which statement is true?
a. This is the normal balance for cash.
b. An error has occurred and must be corrected before financial statements can be
prepared.
c. The account needs to be analyzed to determine the reason for the credit balance.
d. Debit postings exceed the credit postings for the accounting period.
139. Which statement is incorrect?
a. Dividends represent a distribution by a corporation to its stockholders.
b. Dividends are shown on the income statement.
c. Dividends reduce stockholders’ equity, thus the Dividends account increases on the
left side.
d. The Dividends account has a normal debit balance.
140. Why are expenses increased with a debit?
a. They are always paid by cash, which is credited. Thus expenses are debited.
b. They decrease stockholders’ equity thus they increase with a debit.
c. They have the same rules of debits and credits as the retained earnings account.
d. None of the statements are correct.
141. Barnes Company showed the following balances at the end of its first year:
Cash $14,000
Prepaid insurance 700
Accounts receivable 3,500
Accounts payable 2,800
Notes payable 4,200
Common stock 5,400
Dividends 700
Revenues 24,000
Expenses 17,500
The Accounting Information System
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Mc. 141 (count)
What did Barnes Company show as total credits on its trial balance?
a. $37,100
b. $36,400
c. $35,700
d. $37,800
142. Winrow Company showed the following balances at the end of its first year:
Cash $11,000
Prepaid insurance 500
Accounts receivable 2,500
Accounts payable 2,000
Notes payable 3,000
Common stock 5,000
Dividends 500
Revenues 17,000
Expenses 12,500
What did Winrow Company show as total credits on its trial balance?
a. $27,500
b. $27,000
c. $26,500
d. $28,000
143. During January 2014, its first month of operation, Osborn Enterprises earned net income
of $1,700 and paid dividends to the owners of $500. At January 31, the balance in
Retained Earnings will be
a. $0.
b. $1,700 credit.
c. $1,200 credit.
d. $500 debit.
144. On June 1, 2014, England Inc. reported a cash balance of $21,000. During June, England
made deposits of $8,000 and made disbursements totaling $24,000. What is the cash
balance at the end of June?
a. $5,000 credit balance
b. $29,000 debit balance
c. $5,000 debit balance
d. $3,000 credit balance
Test Bank for Accounting: Tools for Business Decision Making, Fifth Edition
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145. At January 1, 2014, Troyer Industries reported Retained Earnings of $280,000. During
2014, Troyer had a net loss of $60,000 and paid dividends to the stockholders of $40,000.
At December 31, 2014, the balance in Retained Earnings is
a. $280,000 debit.
b. $240,000 credit.
c. $220,000 debit.
d. $180,000 credit.
146. During January 2014, Carey Services Inc. paid a cash dividends of $2,000. This
transaction
a. reduces stockholders' equity by $2,000.
b. increases stockholders' equity by $2,000.
c. reduces net income by $2,000.
d. increases expenses by $2,000.
147. During February 2014, its first month of operations, the owner of Schwenn Enterprises
invested cash of $40,000. Schwenn had cash sales of $8,000 and paid expenses of
$14,000. Assuming no other transactions impacted the cash account, what is the balance
in Cash at February 28?
a. $6,000 credit
b. $34,000 debit
c. $48,000 debit
d. $26,000 credit
148. At September 1, 2014, Kern Enterprises reported a cash balance of $70,000. During the
month, Kern collected cash of $30,000 and made disbursements of $50,000. At
September 30, 2014, the cash balance is
a. $20,000 credit.
b. $50,000 credit.
c. $100,000 debit.
d. $50,000 debit.
149. All of the following statements regarding the double-entry system are true except
a. a two-sided effect of each transaction is recorded in appropriate accounts when using
the double-entry system.
b. the double-entry system provides a logical method for recording transactions.
c. both sides of the accounting equation must be affected when recording a transaction
using the double-entry system.
d. when using the double-entry system, the sum of all debits to the accounts must equal
the sum of all credits.
The Accounting Information System
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150. Which of the following accounts has a normal debit balance?
a. Accounts Payable
b. Prepaid Rent
c. Retained Earnings
d. Common Stock
151. Which of the following accounts has a normal credit balance?
a. Prepaid Rent
b. Notes Receivable
c. Rent Revenue
d. Rent Expense
152. During 2014, its first year of operations, Jane's Bakery had revenues of $65,000 and
expenses of $33,000. The business paid cash dividends of $18,000. What is the balance
in Retained Earnings at December 31, 2014?
a. $0
b. $18,000 debit
c. $14,000 credit
d. $32,000 credit
153. At January 31, 2014, the balance in Goebel Inc.'s supplies account was $700. During
February. Goebel purchased supplies of $600 and used supplies of $800. At the end of
February, the balance in the Supplies account should be
a. $700 debit.
b. $900 credit.
c. $2,100 debit.
d. $500 debit.
154. At December 1, 2014, Orear Company's Accounts Receivable balance was $5,600.
During December, Orear had credit sales of $15,000 and collected accounts receivable of
$12,000. At December 31, 2014, the Accounts Receivable balance is
a. $5,600 debit
b. $8,600 debit
c. $20,600 debit
d. $8,600 credit
Test Bank for Accounting: Tools for Business Decision Making, Fifth Edition
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155. At October 1, 2014, Metz Industries had an Accounts Payable balance of $70,000. During
the month, the company made purchases on account of $50,000 and made payments on
account of $80,000. At October 31, 2014, the Accounts Payable balance is
a. $70,000 debit
b. $10,000 credit
c. $40,000 credit
d. $80,000 credit
156. At September 1, 2014, Baxter Inc. reported Retained Earnings of $282,000. During the
month, Baxter generated revenues of $40,000, incurred expenses of $24,000, purchased
equipment for $10,000 and paid dividends of $4,000. What is the balance in Retained
Earnings at September 30, 2014?
a. $282,000 debit
b. $16,000 credit
c. $284,000 credit
d. $294,000 credit
157. The usual sequence of steps in the transaction recording process is
a. journalize, analyze, post to the ledger.
b. analyze, journalize, post to the ledger.
c. journalize, post to the ledger, analyze.
d. post to the ledger, journalize, analyze.
158. In recording accounting transactions, evidence that a transaction has taken place is
obtained from
a. source documents.
b. the Internal Revenue Service.
c. the public relations department.
d. the Securities and Exchange Commission.
159. After a business transaction has been analyzed and entered in the book of original entry,
the next step in the recording process is to transfer the information to
a. the company's bank.
b. stockholders’ equity.
c. ledger accounts.
d. financial statements.
The Accounting Information System
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160. The first step in the recording process is to
a. prepare financial statements.
b. analyze the transaction in terms of its effect on the accounts.
c. post to a journal.
d. prepare a trial balance.
161. Which of the following is not part of the recording process?
a. Analyzing transactions
b. Preparing a trial balance
c. Entering transactions in a journal
d. Posting journal entries
162. Evidence that would not help with determining the effects of a transaction on the accounts
would be a(n)
a. cash register sales tape.
b. bill.
c. advertising brochure.
d. check.
163. After transaction information has been recorded in the journal, it is transferred to the
a. trial balance.
b. income statement.
c. general journal.
d. ledger.
164. The usual sequence of steps in the recording process is to
a. analyze each transaction, enter the transaction in the journal, and transfer the
information to the ledger accounts.
b. analyze each transaction, enter the transaction in the ledger, and transfer the
information to the journal.
c. analyze each transaction, enter the transaction in the book of accounts, and transfer
the information to the journal.
d. analyze each transaction, enter the transaction in the book of original entry, and
transfer the information to the journal.
165. The final step in the recording process is to transfer the journal information to the
a. trial balance.
b. financial statements.
c. ledger.
d. file cabinets.
Test Bank for Accounting: Tools for Business Decision Making, Fifth Edition
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166. The recording process occurs
a. once a year.
b. once a month.
c. repeatedly during the accounting period.
d. infrequently in a manual accounting system.
167. Which of the following is not an example of a source document that provides evidence of
a transaction?
a. A cancelled check
b. A sales slip
c. A trial balance
d. A cash register tape
168. All of the following are significant contributions that the journal makes to the recording
process except the journal
a. discloses the complete effect of a transaction in one place.
b. helps prevent or locate errors because debits and credits can be readily compared.
c. keeps complete information about changes in a specific account balance in one place.
d. provides a chronological record of transactions.
169. A journal provides
a. the balances for each account.
b. information about a transaction in several different places.
c. a list of all accounts used in the business.
d. a chronological record of transactions.
170. The basic format of a journal would not include a(n)
a. brief explanation.
b. account title column.
c. T-account.
d. date column.
171. Transactions in a journal are initially recorded in
a. account number order.
b. dollar amount order.
c. alphabetical order.
d. chronological order.
The Accounting Information System
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172. A journal is not useful for
a. disclosing in one place the complete effect of a transaction.
b. preparing financial statements.
c. providing a record of transactions.
d. locating and preventing errors.
173. A complete journal entry does not show
a. the date of the transaction.
b. the new balance in the accounts affected by the transaction.
c. a brief explanation of the transaction.
d. the accounts and amounts to be debited and credited.
174. The name given to entering transaction data in the journal is
a. chronicling.
b. listing.
c. posting.
d. journalizing.
175. The basic form of a journal entry has the
a. debit account entered first and indented.
b. credit account entered first and indented.
c. debit account entered first at the extreme left margin.
d. credit account entered first at the extreme left margin.
176. Which of the following journal entries is recorded correctly and in the basic format?
a. Salaries and Wages Expense 550
Cash 1,500
Advertising Expense 950
b. Salaries and Wages Expense 550
Advertising Expense 950
Cash 1,600
c. Cash 1,500
Salaries and Wages Expense 550
Advertising Expense 950
d. Salaries and Wages Expense 550
Advertising Expense 950
Cash 1,500
Test Bank for Accounting: Tools for Business Decision Making, Fifth Edition
3-32
177. When a company has performed a service but has not yet received payment, it
a. debits accounts receivable and credits service revenue.
b. debits revenue from services and credits accounts receivable.
c. debits revenue from services and credits accounts payable.
d. makes no entry until the cash is received.
178. A company that receives money in advance of performing a service
a. debits cash and credits prepaid services.
b. debits unearned fees and credits accounts payable.
c. debits cash and credits unearned service revenue.
d. debits cash and credits accounts receivable.
179. When a company receives a utility bill but will not pay it right away, it should
a. debit Utilities Expense and credit Accounts Receivable.
b. debit Utilities Expense and credit Accounts Payable.
c. debit Accounts Payable and credit Utilities Expense.
d. make no entry until the bill is paid.
180. When a service has been performed, but no cash has been received, which of the
following statements is true?
a. No journal entry is made.
b. The entry includes a debit to accounts payable.
c. The entry includes a credit to unearned revenue.
d. The entry includes a debit to accounts receivable.
181. Equipment costing $20,000 machine is purchased by paying $5,000 cash and signing a
note payable for the remainder. The journal entry should include a
a. credit to Notes Payable.
b. debit to Cash.
c. credit to Notes Receivable.
d. credit to Equipment.
182. Equipment costing $20,000 is purchased by paying $5,000 cash and signing a note
payable for the remainder. The journal entry should include a
a. debit to Notes Payable.
b. credit to Cash.
c. credit to Notes Receivable.
d. credit to Equipment.
The Accounting Information System
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183. An accounting record that includes a list of accounts and their balances at a given time is
called a
a. trial balance.
b. general journal.
c. general ledger.
d. chart of accounts.
184. Typically the chart of accounts begins with
a. asset accounts.
b. liability accounts.
c. revenue accounts.
d. expense accounts.
185. The purpose of the ledger is to
a. record chronologically the day’s transactions.
b. keep a record of documentation to support each transaction.
c. keep in one place all information about changes in specific account balances.
d. make sure that all assets, liabilities, etc., have normal balances at all times.
186. Which of the following accounts probably would be listed before the others in a chart of
accounts?
a. Accumulated Depreciation—Buildings
b. Insurance Expense
c. Dividends
d. Notes Payable
187. Which of the following accounts probably would be listed after the others in a chart of
accounts?
a. Accumulated Depreciation—Buildings
b. Insurance Expense
c. Dividends
d. Notes Payable
188. The Unearned Service Revenue account is classified as a(n)
a. asset.
b. revenue.
c. expense.
d. liability.
Test Bank for Accounting: Tools for Business Decision Making, Fifth Edition
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189. A ledger
a. contains only asset and liability accounts.
b. is a collection of the entire group of accounts maintained by a company.
c. provides a chronological record of transactions.
d. should show accounts in alphabetical order.
190. Which of the following is an asset?
a. Service Revenue
b. Notes Payable
c. Supplies Expense
d. Prepaid Rent
191. A person who wants to determine the balance of a particular account should refer to the
a. ledger.
b. source document.
c. chart of accounts.
d. journal.
192. A journal
a. contains only asset and liability accounts.
b. is a collection of the entire group of accounts maintained by a company.
c. provides a chronological record of transactions.
d. should show accounts in alphabetical order.
193. The usual ordering of accounts in the general ledger is
a. assets, liabilities, stockholders’ equity, revenues, and expenses.
b. assets, liabilities, stockholders’ equity, expenses, and revenues.
c. liabilities, assets, stockholders’ equity, revenues, and expenses.
d. stockholders’ equity, assets, liabilities, expenses, and revenues.
194. Management could determine the amounts due from customers by examining which
ledger account?
a. Service Revenue
b. Accounts Payable
c. Accounts Receivable
d. Supplies
The Accounting Information System
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195. The ledger accounts are typically arranged in
a. chronological order.
b. alphabetical order.
c. financial statement order.
d. order of appearance in the journal.
196. Which statement is incorrect?
a. A chart of accounts is a listing of accounts used by a business.
b. New accounts can be added to the chart of accounts.
c. Stockholders’ Equity is an account that is included in the chart of accounts.
d. Account titles for the chart of accounts are used in general journal entries.
197. The procedure of transferring journal entries to the ledger accounts is called
a. journalizing.
b. analyzing.
c. reporting.
d. posting.
198. A chart of accounts for a business firm
a. is a graph.
b. indicates the amount of profit or loss for the period.
c. lists the accounts in the ledger.
d. shows the balance of each account in the general ledger.
199. Posting
a. should be performed in account number order.
b. accumulates the effects of journalized transactions in the individual accounts.
c. involves transferring all debits and credits on a journal page to the trial balance.
d. is accomplished by examining ledger accounts and seeing which ones need updating.
200. The principal purpose of posting is to
a. help identify errors made in the journal.
b. accumulate the effects of journalized transactions in the individual accounts.
c. enter transactions directly into the ledger.
d. help determine if the financial statements are ready to be prepared.
201. Posting is performed by transferring information from the
a. source documents to the journal.
b. ledger to the journal.
c. source documents to the ledger.
d. journal to the ledger.
Test Bank for Accounting: Tools for Business Decision Making, Fifth Edition
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202. Posting
a. transfers journal entries to ledger accounts.
b. transfers ledger transaction data to the journal.
c. involves transferring all debits and credits on a journal page to the trial balance.
d. provides a chronological record of transactions.
203. Posting
a. transfers ledger transaction data to the journal.
b. normally occurs before journalizing.
c. accumulates the effects of journalized transactions in the individual accounts.
d. enters transaction data in the journal.
204. A list of accounts and their balances at a given time is called a(n)
a. journal.
b. posting.
c. trial balance.
d. income statement.
205. On January 14, Decker industries purchased supplies of $500 on account. The entry to
record the purchase will include
a. a debit to Supplies and a credit to Accounts Payable.
b. a debit to Supplies Expense and a credit to Accounts Receivable.
c. a debit to Supplies and a credit to Cash.
d. a debit to Accounts Receivable and a credit to Supplies.
206. On July 7, 2014, Shireman Enterprises received cash $1,400 for services rendered. The
entry to record this transaction will include
a. a debit to Service Revenue of $1,400.
b. a credit to Accounts Receivable of $1,400.
c. a debit to Cash of $1,400.
d. a credit to Accounts Payable of $1,400.
207. The primary purpose of the trial balance is to
a. disclose the complete effect of a transaction in one place.
b. make sure a journal entry is not posted twice.
c. transfer journal entries to the ledger accounts.
d. prove the equality of the debit and credit amounts after posting.
The Accounting Information System
3-37
208. The accountant for Mega Stores, Inc. should have recorded the following correct entry:
Jan. 15 Notes Receivable 243
Equipment 243
Instead, he misunderstood the transaction and recorded an incorrect entry. Which of the
following wrong entries pertaining to this transaction could have been detected as
erroneous when using a trial balance?
a. Jan 15 Notes Payable 243
Cash 243
b. Jan 15 Notes Receivable 234
Equipment 234
c. Jan 15 Equipment 243
Notes Receivable 243
d. Jan 15 Notes Receivable 243
Equipment 234
209. If the sum of the debit column equals the sum of the credit column in a trial balance, it
indicates
a. no errors have been made.
b. no errors can be discovered.
c. that all accounts reflect correct balances.
d. the mathematical equality of the accounting equation.
210. A trial balance is a listing of
a. transactions in a journal.
b. the chart of accounts.
c. general ledger accounts and balances.
d. the totals from the journal pages.
211. Customarily, a trial balance is prepared
a. at the end of each day.
b. after each journal entry is posted.
c. at the end of an accounting period.
d. only at the inception of the business.
212. A trial balance would only help in detecting which one of the following errors?
a. A transaction that is not journalized
b. A journal entry that is posted twice
c. Offsetting errors made in recording the transaction
d. A transposition error when transferring the debit side of journal entry to the ledger
Test Bank for Accounting: Tools for Business Decision Making, Fifth Edition
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213. A trial balance proves
a. the mathematical equality of debits and credits after the posting process.
b. the ledger is posted correctly.
c. that all transactions have been recorded correctly.
d. that all transactions have been posted.
214. A trial balance
a. is a list of accounts with their balances at a given point in time.
b. will not balance if a correct journal entry is posted twice.
c. will tell you if a transaction is not posted at all.
d. proves the factual accuracy of journalized transactions.
215. A trial balance will not balance if
a. a correcting journal entry is posted twice.
b. a $50 cash dividend is debited to dividends for $500 and credit to cash for $50.
c. a $300 payment on accounts payable is debited to accounts payable for $30 and
credited to cash for $30.
d. a transaction is not posted at all.
216. Which of the following errors, each considered individually, would cause the trial balance
to be out of balance?
a. A payment of $148 to a creditor was posted as a debit to Accounts Payable and a
debit of $148 to Cash.
b. Cash of $530 received from a customer on account was posted as a debit of $350 to
Cash and as a credit of $350 to Accounts Payable.
c. A payment of $59 for supplies was posted as a debit of $95 to Supplies and a credit of
$95 to Cash.
d. A transaction was not posted.
217. Borrowing money and issuing shares of stock are
a. operating activities.
b. investing activities.
c. financing activities.
d. None of these answer choices are correct.
218. The purchase or sale of long-lived assets used in operating the business is
a. an operating activity.
b. an investing activity.
c. a financing activity.
d. None of these answer choices are correct.
The Accounting Information System
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Answers to Multiple Choice Questions
BRIEF EXERCISES
Be. 219
Presented here are five economic events. For each item, indicate whether the event increased
(+), decreased (–), or had no effect (NE) on assets, liabilities, and stockholders’ equity.
Stockholders’
Assets = Liabilities + Equity
1. Received cash for services rendered. _______ ______ _______
2. Purchased supplies on account. _______ ______ _______
3. Paid employees' salaries. _______ ______ _______
4. Dividends paid in cash. _______ ______ _______
5. Expenses paid in cash. _______ ______ _______
Test Bank for Accounting: Tools for Business Decision Making, Fifth Edition
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Be. 220
At June 1, 2014, Massoth Industries had an Accounts Receivable balance of $18,000. During the
month, the company had credit sales of $25,000 and collected Accounts Receivable of $27,000.
What is the balance in Accounts Receivable at June 30, 2014?
Be. 221
For each item below, indicate whether a debit or credit applies.
1. Increase in Accounts Payable ____ __
2. Increase in Accounts Receivable ____ __
3. Increase in Retained Earnings ____ __
4. Decrease in Unearned Service Revenue ____ __
5. Decrease in Interest Payable ____ __
